Timely reminder

HI

We went to an auction yesterday and learned a very valuable lesson that i thought I would share with you.

Do your homework on the value of a property!!!

We had identified an interesting property that we liked for a number of reasons. It is 18 months old and we were able to establish through a number of sources:

The market value of similar properties in the same estate that had been sold within the last 3 months.
The cost to build the same house in the same estate.

We believed the house was worth $360k to $380k and our friendly estate agent confirmed this as her personal belief based on her information.

The house sold for $448k!!!

Someone had not researched the area, nor the price to build such a house in that estate and as such have paid $70k to $90k too much for a house. That is virtually 20% above the market value. Ouch!!!

The lesson from all this is to do your homework thoroughly and be prepared to walk away from a sale when the asking price is more than the market value.

I hope that this helps.

Dale
 
Hi Dale,
What I find interesting about that scenario is the snow ball effect it will have. Do you think that now sets a bench mark figure for agents and vendors in close proximity with similar housing to justify higher asking prices?.
Of course we all think our own property is worth more than the fellows next door, as we know how much sweat and effort has gone into it, and now someone has proved it for us!
Let us know if you see a price adjustment in that area.
Denise
 
Dale (and everyone else),

What do you think will happen with the loan now?. Will the bank tell these people to put up the extra $$$ needed to balance the loan to value ratio?

Or will the review the buyers serviciability, and if acceptable, let them have their negative equity finance?

Did this not occur in SE QLD, with banks giving out loans to way overpriced property, because they were happy people could service the debt?

What about other valuations in the area, will valuers dismiss this sale as a blip on the range?

And of course we can image what agents are thinking now (yippe!)

Just some questions to hear peoples thoughts on this...

Michael G
 
Michael,

In my opinion (if it is one of the big 4) the bank will make the people cough up the extra deposit. I think it would be rare for them to accept it on serviceability alone. However we all know that there are lenders out there who will give anyone whatever they want regardless of whether they can afford it or not.

Unless the people have sufficient equity elsewhere they will need to come up with the funds.

I had a similar situation a few years back where I went to buy a property and the auction went above the figure that I had got as a valuation that I arranged myself (from one of my bank's panel valuers). As I did not have the extra deposit and was doing the purchase on equity alone I had to stick to my limit (the valuation).

Obviously the people in Dale's story "fell in love with the place" and let's hope for their sake they have the cash or they might be in for a nasty surprise when they go back to the bank :)

PIppety
 
G'Day all,

The "market value" for that particular property was determined on that day, at that auction.

What we can argue is that the "replacement value" for a similar new home in that area is significantly less.

The definition of market value, when I studied "valuation of real estate" as part of my Certificate of Business Studies - Real Estate, was " a willing but not anxious seller and a willing but not anxious buyer and the price that would be agreed on in such a situation."

Now assuming that the buyer was anxious, lets work back to the second last or even third last bid, that is where I feel therein approximately lies "the Market Value."

Valuers being a conservative bunch, in order to cover their own posteriors, will bring in comparative sales to justify the figure that they place on a property, but ultimately when valueing other properties in the area at a later date, they must accept this sale as a comparitive as well, unless they can qualify that the sale price achieved in this particalar instance was from an anxious buyer.
i.e.
........ the purchaser bought the property because there was another benefit to them that would not be available or applicable to another purchaser of the same property, for example, they had parents or close family in the neighbourhood and they wanted at any cost to be near them.

.............the purchasers owned an adjoining or nearby property and that there would be an actual or perceived benefit from also owning this particular property.

..........and so on and so on.

As property investors we have a duty unto ourselves to do our homework, crunch the numbers and proceed to make informed decisions on purchasing investment property within the parameters that we have decided upon for ourselves.

Paying above "Market Value" is definately not a strategy that I would recommend, (now thats stating the obvious), unless we can see something that masses cannot.

I have on some occasions paid well over generally accepted "Market Value" to secure a property that I have wanted, and have been told by others that I am out of my mind for doing so.

And it's the same people that turn around and tell you a year or so later that "you stole that place".


Dale said in his post......
"The lesson from all this is to do your homework thoroughly and be prepared to walk away from a sale when the asking price is more than the market value."

I agree..........but what is the "market Value"...in your eyes?

Something to ponder on.......

regards
 
Hi

To an extent, Jakk and Denise are suggesting the same thing . . . ie, that the price is now the market value. Interestingly, there are two houses also for sale in the same street. One right next door and it is a similar age, size and quality and it was offered at about $280+ and another a little down the street going for $300+
That is a big difference!!!

Sales of properties in that street have only fetched high $200's to mid $300's in the last 6 months. It is in a suburb that has nice pockets, but by and large the postcode will work against this price.

What is it's real value? Hard to say and I agree with Jakk's comments to an extent, but, the evidence in front of me suggests that someone else got carried away with their emotions in my humble opinion.

As to the other concerns raised in this thread, most of the bigger banks will value the house on the auction price and not use a valuer at all so the purchasers might not have too many difficulties.

have fun

Dale
 
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